Cisco's Big Challenge: Will Chambers Stay To See It Through?

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After 19 years at the helm of one of the most influential IT companies in the world, Cisco Systems CEO John Chambers is no stranger to change. In fact, Chambers is quick to note that navigating market transitions -- and emerging from them not just unscathed, but stronger -- has for decades been key to Cisco's success. He urged audiences at the 2014 Cisco Live and Partner Summit events to remember how Cisco not only survived, but thrived, when it came to major industry shifts because in the ultra-fast-paced world that is technology, it's always change -- or die trying.

Today, however, the pace of market change is accelerating and the transitions Cisco faces are some of its toughest yet. Even looking at its track record, some partners question how Cisco—a company whose DNA is so deeply rooted in hardware—can continue to win in a network and infrastructure market that's racing so quickly toward software. How Cisco plans to compete, and go to market, with cloud services through its new Intercloud strategy is another question weighing heavily on partners' minds.

But one of the biggest questions looming over Cisco's some 68,000 channel partners is how long Chambers, who in 2012 said he could retire any time between now and 2016, will stay on board to see these transitions through.

In an interview with CRN editors last month, Chambers detailed Cisco's game plan for navigating and capitalizing on the rapidly shifting tides of today's IT landscape. He also made one message clear: Cisco intends to be a leader in software-defined networking and cloud—both during and after his tenure.

"We are pretty good at getting these [transitions] right," Chambers told CRN, sitting at a desk in his modest-size office within Cisco's San Jose, Calif., headquarters. "It doesn't mean we underestimate the challenges and opportunities, but this is how Cisco has always approached these areas: with no fear, just a healthy paranoia around what you can do wrong."

Since being tapped to lead Cisco in 1995, Chambers has grown the company from a $2.2 billion hardware manufacturer to a $48.6 billion network hardware, software, security and services powerhouse that's more bullish than ever on becoming the world's No. 1 IT company. Cisco had 3,827 employees when Chambers was appointed CEO. Today, there are more than 70,000.

Still, Chambers' tenure hasn't been all smooth sailing for Cisco. In April 2011, Cisco began a painful corporate restructuring that resulted in the loss of 7,800 jobs in the course of two years. It was a move that also suggested Chambers had tried too hard to make Cisco all things to all people; the Flip videocamera line the company acquired through its $590 million purchase of Pure Digital in 2009—a move that, at the time, left some analysts scratching their heads—was shuttered completely in the corporate reshuffle.

"I don't think there's an analyst on the planet who thought that Flip was a good acquisition," Alex Henderson, former analyst with Miller Tabak, told The New York Times when the ax fell on Flip. "Cisco had this idea that they wanted to be in the consumer's home network, but they had a grand vision that was not grounded in reality."

In 2013, Cisco's consumer division was whittled down further when it sold its Home Networking Business Unit, including its Linksys line, to Belkin. Cisco had acquired Linksys in 2003 for $500 million.

More recently, it's been Cisco's financial performance, rather than its M&A strategy, that's put Chambers on the hot seat. Cisco in December slashed its long-term growth outlook, projecting overall revenue to grow between 3 percent and 6 percent over the course of the next three to five years, rather than 5 percent to 7 percent as originally expected. Analyst estimates suggest Cisco will report annual revenue of roughly $47 billion—down just more than 3 percent compared with last year—when it reports its fiscal year 2014 and fourth quarter earnings Aug. 13. While Cisco shares have shot up 10.8 percent in the first half of 2014—climbing from $22.43 on Dec. 31 to $24.85 on June 30—they've lost almost 70 percent of their value since peaking in 2000 at about $82.

Simon Leopold, Communications Equipment analyst at Raymond James, said Cisco is undergoing a transformation, moving on from its days as a "cool, sexy growth company" to more of an "adult" company that, despite not reporting the growth levels it used to, is still a "quality, lower-risk and classically blue chip-type of investment."

"If you look over the last decade, it's really been [for Cisco], in some ways, a reset —or maybe 'maturing' is the way to think about it. We have a company that went from, just a few years ago, being considered a growth company to now being considered more of a mature, industrial company. We went from a company that used to have, regularly, double-digit top-line growth rates to a company now that has low, single-digit growth rates," Leopold said. "There was a transformation. And that transformation was not just in [Cisco's] business, but a change in who invested in Cisco."